Netflix, Inc. (NFLX), Amazon.com, Inc. (AMZN): Internet TV Giant Killing it in Kiddie Content

Disney and DreamWorks are two of the leading names in animation. Having locked both up in deals gives Netflix a huge advantage over the competition. While there is risk in paying DreamWorks to create untested content, the company has a proven track record of success with franchise-worthy hits like Shrek, Madagascar, and Kung Fu Panda.

DreamWorks, meanwhile, has now found a new outlet for its content. That should help insulate it somewhat from the hit-or-miss movie business. And it creates another distribution partner to play off of to get more money for its content. This could help the company’s top-line break out of its malaise in the $700 million area.

The shares have seen a large advance over the last few months so they are most appropriate for momentum investors right now. That said, if it can use the Netflix deal to create more consistent and higher top- and bottom-line results, there is room for upside. Growth investors should keep an eye on this content creator.

Too Expensive

Netflix, for its part, jumped around 7% on the news of this deal. While the enthusiasm is justified, the deal just means the company is going to be paying even more for content. Rising content costs are a big issue to watch here and were a part of the reason for earnings falling from $4 a share in 2011 to $0.30 last year. Clearly there is a lot of potential, but not if the company has to keep paying more and more for content.

Netflix is differentiating itself well and has now established a dominant kiddie offering. However, investors should be concerned about its elevated price, over 500 trailing price to earnings ratio, and the real risk that investors sour on the shares if results can’t keep up with expectations.

The article Internet TV Giant Killing it in Kiddie Content originally appeared on Fool.com.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, DreamWorks Animation, and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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